Facebook’s $2 Billion Deal for Oculus

In a surprise move, Facebook announced on Tuesday that it had reached a $2 billion agreement to buy Oculus VR, the maker of a virtual reality headset, in a bet that technology commonly associated with science fiction can help eventually turn social networking into an immersive 3-D experience, Nick Wingfield and Vindu Goel write in The New York Times. The announcement comes just over a month after Facebook made waves by revealing it would buy the mobile messaging app WhatsApp for up to $19 billion.

The deal was particularly unexpected because Oculus, a small start-up that began as a Kickstarter project, is working on what some view as a niche technology aimed at serious video game players. For his part, Mark Zuckerberg, the founder and chief executive of Facebook, said the deal reflected his belief that virtual reality could be one of the “platforms of tomorrow.” Facebook is paying $400 million in cash and about $1.6 billion in stock for Oculus, with up to $300 million more depending on Oculus’s performance.

Facebook is the latest Silicon Valley company to invest in wearable hardware that reimagines how people will one day interact with information and other forms of content. But the deal had some analysts questioning Facebook’s strategy. One said the fit was “poor,” while another viewed virtual reality as having the same story as it did two decades ago, one of “hip, hype and hope.”

Elite venture capitalists stand to reap huge rewards from the deal, but many who supported Oculus in its early days will walk away empty-handed, William Alden writes in DealBook. Those would be its backers on Kickstarter, the fund-raising platform that Oculus used to raise $2.4 million in September 2012. And at least one of those supporter was not happy with the deal, writing on his blog, “I did not chip in ten grand to seed a first investment round to build value for a Facebook acquisition.”

WHAT OTHERS ARE SAYING  |  From The Verge: “The acquisition of Oculus seemingly comes out of nowhere: the company just demoed its most recent version of the Oculus Rift development kit at GDC 2014 to much fanfare. Oculus has been steadily moving towards a consumer product, and Facebook’s resources can only help to push that mission along.”

Variety writes: “Keep in mind Oculus Rift is really just a screen, albeit one strapped to a headset that fits around your eyeballs. While Facebook’s entry into the hardware business may make it no different than Apple with its iPad, there’s also a comparison to be made with exhibitors like AMC or Regal.”

Felix Salmon at Reuters writes: “Is it too early to declare that Zuckerberg has ambitions to become the Warren Buffett of technology? Look at his big purchases â€" Instagram, WhatsApp, Oculus. None of them are likely to be integrated into the core Facebook product any time soon; none of them really make it better in any visible way.”

News of the deal may have leaked about a month ago. From a Reddit post: “So no way to confirm this, but my friend works in the same building as Oculus, and he ran into Mark Zuckerberg taking the elevator to Oculus’s floor.”

A LIKELY HEIR IS LEAVING JPMORGAN  |  Once considered a possible heir to Jamie Dimon, the chief executive of JPMorgan Chase, Michael J. Cavanagh announced on Tuesday that he would resign as JPMorgan’s co-leader of investment banking to take on the role of co-chief operating officer of the Carlyle Group, Jessica Silver-Greenberg and Michael Corkery write in DealBook. The decision underscores how running a large bank has become less attractive amid the heightened scrutiny and regulatory hurdles that have beleaguered Wall Street since the financial crisis.

“While it is not uncommon for bank executives to leave for other jobs â€" at least 10 senior executives have left JPMorgan in the last two years â€" Mr. Cavanagh’s departure was surprising, in part, because of his prominence at JPMorgan and his reputation within the bank as what one executive referred to as a ‘lifer,’” Ms. Silver-Greenberg and Mr. Corkery write. “His move also shows that the siren call of private equity and hedge funds, financial industries that promise eye-popping compensation with far lighter regulatory burdens, is growing louder.”

News of Mr. Cavanagh’s decision set off speculation about who would ultimately succeed Mr. Dimon, as industry analysts increasingly worry that the lure of private equity firms and other players could siphon some of the most capable executives away from overseeing banks.

CANDY CRUSH MAKER SET TO TRADE  |  When King Digital Entertainment, the maker of the wildly popular game Candy Crush Saga begins trading on the New York Stock Exchange on Wednesday, investors will have to decide whether they are convinced that King is more than a one-trick pony, Michael J. de la Merced and Mark Scott write in DealBook. King priced its offering at $22.50 a share on Tuesday, the midpoint of its projected range. At that price, the company will raise $500 million, valuing it at more than $7 billion in one of the biggest initial public offerings so far this year.

King’s offering success will depend largely on whether investors believe the company can come up with new hits â€" and continued revenue and profit â€" to back up such a large valuation. While Candy Crush has generated hefty earnings for King, its gross bookings â€" a nonstandard measure of how much users pay for virtual items and other goodies â€" fell in the fourth quarter last year. Most of all, King is hoping to avoid the fate of Zynga, the company behind the FarmVille and Words With Friends franchises, which made a splashy market debut in 2011, only to see its shares plummet as it struggled to stay relevant.

ON THE AGENDA  |  The Mortgage Bankers’ Association purchase applications index is out at 7 a.m. Durable goods order for February are out at 8:30 a.m. Riccardo Zacconi, a founder and chief executive of King Digital Entertainment, is on Bloomberg TV at 10:30 a.m. Andy Dunn, a co-founder of Bonobos, is on Bloomberg TV at 4 p.m. Laurence D. Fink, the chief executive of BlackRock, is on Fox Business Network at 9 a.m. Charles I. Plosser, president of the Philadelphia Fed, is on Fox Business Network at 10 a.m. Carl C. Icahn is on CNBC at 12:30 p.m. King Digital Entertainment arrives on the public markets.

MURDOCHS TAKE STEP IN SUCCESSION PLANNING  |  Rupert Murdoch has taken a big step in making succession plans for his media empire, appointing his sons Lachlan and James to top roles. Lachlan will become nonexecutive chairman of News Corporation and 21st Century Fox, while James will become co-chief operating officer of 21st Century Fox.

 

Mergers & Acquisitions »

On Eve of M.&A. Conference, Deal Makers Feel Hopeful, but Still Wary of Activists  |  A poll of mergers bankers and lawyers finds that deal makers remain hopeful that acquisitions will continue, but they remain wary that dissident shareholders will still do their best to stir things up. DealBook »

Julius Baer Takes Majority Stake in Brazilian Wealth Manager  |  The Swiss private bank Julius Baer now owns 80 percent of GPS Investimentos Financeiros e Participações, Brazil’s largest wealth management company, which has about $6.5 billion in assets under management. DealBook »

Emerging Market Deal Volume at Low in 2013  |  Mergers and acquisitions activity among developed and emerging markets dropped in 2013, falling 17.3 percent compared with a year earlier, Reuters reports. REUTERS

Intel Gets Into Wearable Technology Game  |  Intel has acquired Basis Science, which makes a health-tracking watch, in a move to increase its pace of progress in the wearable technology market, The Financial Times writes. FINANCIAL TIMES

Sprint’s Plans Could Pave the Way for Comcast-Time Warner Deal  |  If Sprint makes good on its plan to sell high-speed wireless broadband to homes, then cable companies that rely on broadband services could face a tougher challenge than expected, Quartz reports. This challenge could give regulators “a lot more leeway to allow cable company mergers,” including between Comcast and Time Warner Cable. QUARTZ

INVESTMENT BANKING »

A Ranking of Top Executives by Their Employees  |  The chief executives of LinkedIn and Ford were among the top scorers in Glassdoor’s ranking of the leaders at 51 big companies. Yahoo and General Electric anchored the bottom. DealBook »

Assessing the Handouts to Big Banks  |  “The largest U.S. banks and their lobbyists have been trying hard to counteract the growing impression that they present an unacceptable threat to the economy. In a new series of papers, the Federal Reserve Bank of New York offers some evidence that they probably won’t like,” Mark Whitehouse writes in Bloomberg View. BLOOMBERG VIEW

Britain’s Panmure Gordon Benefits From I.P.O. Appetite  |  Profit at Panmure Gordon, the British broker and investment bank, doubled in 2013, as the bank reaped rewards from an increased appetite for initial public offerings, The Financial Times writes. FINANCIAL TIMES

PRIVATE EQUITY »

Blackstone Nears Deal for Gates Global  |  The private equity firm Blackstone Group is close to a deal to buy Gates Global, a maker of industrial and automotive parts, for more than $5.5 billion, Reuters writes, citing unidentified people familiar with the situation. Blackstone is preparing to complete the deal alone after TPG Capital, which had been planning to team up on the bid, decided not to back a higher offer to meet Gates’s price expectations. REUTERS

Carlyle Looks to Buy Traditional Asset Manager  |  The Carlyle Group is exploring acquiring a traditional money manager to broaden its investment platform in a push to attract more retail investors and achieve a higher stock market valuation, Reuters writes, citing unidentified people familiar with the situation. REUTERS

Ross’s Firm Names New Leaders  |  The private equity firm W.L. Ross & Company, led by the billionaire investor Wilbur Ross, said on Tuesday that it had appointed two new leaders as Mr. Ross prepares for his succession, Reuters writes. REUTERS

HEDGE FUNDS »

Loeb Files Suit Against Sotheby’s, Seeking to Eliminate Its Poison Pill  |  The billionaire activist investor Daniel S. Loeb’s lawsuit sets the stage for what promises to be a no-holds-barred battle at the annual shareholder meeting on May 6. DealBook »

Activists Crash Deal Makers’ Party  |  This year’s Tulane Corporate Law Institute conference for merger lawyers and bankers will likely again see aggressive shareholder activist concerns brought to the forefront, Reynolds Holding writes for Reuters Breakingviews. DealBook »

Hedge Funds Trade Around Conflict in Ukraine  |  “As Russian president Vladimir Putin ratchets up tensions with the U.S. and its allies over the annexation of the Crimean peninsula, the geopolitical turmoil is prompting hedge funds to trade around the conflict,” Bloomberg Businessweek reports. BLOOMBERG BUSINESSWEEK

BlackRock Chief Addresses Concerns About Activist Investors  |  Laurence D. Fink, the chief executive of the asset manager BlackRock, wrote a letter to other chief executives addressing concerns about the increasing clout of activist investors, The Wall Street Journal writes. WALL STREET JOURNAL

I.P.O./OFFERINGS »

British Government to Sell a Big Stake in Lloyds Banking  |  In a sign that Britain’s financial sector is strengthening, the sale of shares will reduce the government’s stake in the Lloyds Banking Group to about 25 percent from about 32.7 percent. DealBook »

Kim Dotcom in New Zealand Listing  |  He may be wanted on copyright infringement charges in the United States, but Kim Dotcom is still planning a deal while he is in New Zealand. The Internet entrepreneur is planning to list the file-storage company Mega on the stock market there through a reverse takeover of a shell company. ASSOCIATED PRESS

Tech I.P.O.’s and the Broader Market  |  A segment on Bloomberg Television explores what initial public offerings by Box and King Digital Entertainment, the maker of Candy Crush Saga, mean for the broader market. BLOOMBERG TV

VENTURE CAPITAL »

A Start-Up Is Offering an Online Way to Invest in Hollywood  |  Junction Investments represents the latest change brought about by the Jumpstart Our Business Startups Act, or JOBS Act, whose passage in 2012 opened up new ways for companies to raise money. DealBook »

LiveSafe, a Safety App, Raises $6.5 Million From IAC and Others  |  The company plans to announce on Tuesday that it has raised $6.5 million in financing in a round led by the Internet conglomerate IAC. DealBook »

Hortonworks Closes $100 Million Funding Round  |  Hortonworks, a Hadoop company spun out of Yahoo, announced on Tuesday that it had raised $100 million in a funding round led by BlackRock and Passport Capital, ReCode writes. This is the second big funding deal in two weeks for a company based on Hadoop, an open source big data technology. RECODE

Square to Open Silicon Valley Office  |  Square announced on Tuesday that it would open a satellite office based in Santa Clara, Calif., in the Silicon Valley, ReCode reports. RECODE

LEGAL/REGULATORY »

I.R.S. Takes a Position on Bitcoin: It’s Property  |  Adding clarity to the regulatory landscape, the Internal Revenue Service said it would consider Bitcoin property for tax purposes, since it “does not have legal tender status in any jurisdiction.” DealBook »

Federal Court Rejects Gupta’s Appeal for New Trial  |  A federal appeals court found that there was “ample evidence” that Rajat K. Gupta took part in a wider criminal conspiracy. DealBook »

Sidley Austin Hires Senior Lawyer From General Electric  |  Christopher M. Barbuto, one of General Electric’s senior mergers and acquisitions lawyers who helped engineer some of the company’s largest transactions, has joined the law firm Sidley Austin. DealBook »

Confidence and Home Price Data Point to Stronger Growth  |  Upbeat economic figures on consumer confidence and house prices were tempered by a five-year low in new home sales, partly because of cold weather. REUTERS

Banks Pay Out $100 Billion in U.S. Fines  |  Banks have paid out $100 billion in United States legal settlements since the financial crisis, according to Financial Times research. More than half of the penalties have been assessed in the last year. FINANCIAL TIMES